Divorce ruling takes recession into account

TU THANH HA

Globe and Mail Update

February 4, 2009 at 2:08 PM EST

In a pivotal judgment for recessionary times, the Ontario Court of Appeal
has ruled that significant changes in a person's assets can be considered a
factor when judges split the net worth of a divorcing couple.

The decision
was eagerly watched by divorce lawyers who have been deluged recently with
cases where estranged spouses found their businesses and investments
shrinking after their separation.

When dealing with divorcing couples, Ontario courts evaluate the assets
earned during the marriage and order one of the spouse to make an
equalization payment that will enable both sides to end up with roughly the
same worth.

“In my opinion, a court may take into account a post-separation date
change in the value of a spouse's assets,” Mr. Justice Robert Blair wrote on
behalf of the three-judge appellate panel.

The case predates the current economic turmoil, pitting a textile
entrepreneur from Ajax, Ont., Harold Serra, who separated from his wife,
Barbara, in 2000 and divorced in 2003.

Mr. Serra argued that he couldn't meet the $3.3-million equalization
payment he owed Ms. Serra because his business declined shortly after the
separation, when an influx of Chinese exports led to the collapse of the
Canadian textile industry.

The court of appeal agreed in its ruling.

“An equalization of net family property that requires Mr. Serra to pay
more than his total net worth (and arguably as much as twice his net worth)
because of a marked decline in the value of his major asset post-separation
. . . is, in my view, unconscionable,” Judge Blair wrote.

However, the ruling makes it clear that, while it opened the door to
readjusting payments when a person's net worth changes significantly, the
change has to meet a high threshold.

“Concluding that it may be considered as a factor does not lead
necessarily to a finding on the facts that an equalization order would be
unconscionable. This is an important distinction.”

The ruling reduced the amount Mr. Serra had to pay his ex-wife to
$900,000.

“Now for the first time, if your assets have gone down significantly, you
have your foot in the door. Whereas before, even if your assets had dropped
in value, you had no arguments,” said Mr. Serra's lawyer, Philip Epstein.

Ms. Serra's lawyer, James Morton, said she is disappointed and hasn't
decided whether to pursue the case further. She has 60 days to decide if she
wants to appeal the decision to the Supreme Court of Canada.

“This is the state of law until the Supreme Court decides otherwise, for
at least another two, three years,” Mr. Morton said.

Mr. Morton said the ruling could also apply when someone's assets
dramatically increases between the time of separation and settlement,
opening the door for ex-spouses seeking higher payments.

This decision is as usual a decision to benefit the legal profession. Absent
this ruling, just how could the victim's lawyer get paid.

Often the unwritten substantive issue is how to make sure either the
favoured lawyer is rewarded with a windfall winning costs order against the
other side, or to make sure that both lawyers get to divide up what is left.

If, the victim is a self represented litigant, well, thats an open ticket
for the judge to engage in a flagrant abuse of judicial discretion and make
any order that will not just take all the assets but put generally him into
a life of poverty and with draconian orders specifically designed to prevent
any future variation no matter what changes occur. Our family courts get rid
of case loads by attacking self reps like vultures spotting a rotting
carcass which is exactly how the underbelly of the Family Court Judiciary
view anyone who can''t afford a lawyer. That same same small group of judges
make up most of the draconian orders that the public or the legal profession
rarely if ever hear about. www.OttawaMensCentre.com